Mobile formatting unfortunately.
To make this short:
Just reenlisted, 24 year old E-5 just a couple months away from my 6 year mark, getting a 60k bonus after taxes. I'll be getting 50% up front.
22k in my TSP
4k in FXAIX in Fidelity
30k in an AMEX HYSA (4.25%)
4k split between a checking and savings account
Only debt is a car loan with $15,101.68 @3.9% with a monthly payment of $379.60.
On average, I put away $1300 in savings every month.
Now my question is, should I have TSP(or an IRA) take half of the 30k, then pay off my car loan with the remaining 15k? Or take all of the 30k and max out my TSP and an IRA or invest it somehow else?
I'm not a fan of having debt and a monthly payment, so I want to clear my car payment, but at the same time I know that in the long run, that 15k I would use to pay off my loan invested in my retirement or some other kind of tax advantaged account will net me significantly more. That's my dilemma. Any advice would be welcome.
Pay off my car loan with my Reenlistment bonus, or invest?
byu/FreshRestarted inMilitaryFinance
Posted by FreshRestarted
4 Comments
Don’t pay off the loan. That’s a low interest rate. Typically anything over 6% you should pay off.
4.25 > 3.9, so mathematically you should put it in your HYSA, or even use it to max your TSP/IRA.
This is where the “personal” part of “personal finance” becomes important. I would just pay off the car loan myself, even if it technically isn’t the mathematically correct decision
The math says not to pay off the car loan with that interest rate, but paying off a debt early is never a ‘bad move’ either. You’re way ahead of most people your age, and if you’d sleep better at night being debt free, there absolutely nothing wrong with paying the car off regardless of what the numbers say.
I have a 3.2% mortgage on a house I bought 8 years ago and I pay 100 extra a month, which equals about 1.5 extra principle payments a year. I stopped adding to the extra payment a few years ago and kept it at 100. I know what the math says, but I’m keeping this house, whether I live in it or not, until I’m ready to build/buy out forever home and it would be nice to have it paid off by then. Peace of mind….
If you stay in for 20, invest 100% of your into the S&P 500, you could be looking at $256,052.36 around your mil retirement.
If you stay in for 20, pay off your car loan, invest the remaining $44,898.32 into the S&P 500, you could be looking at $191,605.3 around your mil retirement.
Assuming the 10.5% average return of the S&P 500.